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Optimal contracting with dynastic altruism: Family size and per capita consumption

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  • Hosseini, Roozbeh
  • Jones, Larry E.
  • Shourideh, Ali

Abstract

We use a Barro–Becker model of endogenous fertility, in which parents are subject to idiosyncratic shocks that are private information (either to labor productivity or taste for leisure), to study the efficient degree of consumption inequality in the long run. The planner uses the trade-off between family size and future consumption and leisure, to provide incentives for workers to reveal their shocks. We show that in this environment, the optimal dynamic contract no longer features immiseration in consumption. We also discuss the implications of the model on the long run properties of family size in the optimal contract and show that the long run trend in dynasty size can be either positive or negative depending on parameters.

Suggested Citation

  • Hosseini, Roozbeh & Jones, Larry E. & Shourideh, Ali, 2013. "Optimal contracting with dynastic altruism: Family size and per capita consumption," Journal of Economic Theory, Elsevier, vol. 148(5), pages 1806-1840.
  • Handle: RePEc:eee:jetheo:v:148:y:2013:i:5:p:1806-1840
    DOI: 10.1016/j.jet.2013.04.022
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Córdoba, Juan Carlos & Liu, Xiying & Ripoll, Marla, 2016. "Fertility, social mobility and long run inequality," Journal of Monetary Economics, Elsevier, vol. 77(C), pages 103-124.
    2. Córdoba, Juan Carlos & Liu, Xiying & Ripoll, Marla, 2016. "Fertility, social mobility and long run inequality," Journal of Monetary Economics, Elsevier, vol. 77(C), pages 103-124.
    3. Luigi Iovino & Mikhail Golosov, 2013. "Social Insurance, Information Revelation, and Lack of Commitment," 2013 Meeting Papers 1020, Society for Economic Dynamics.
    4. repec:eee:macchp:v2-725 is not listed on IDEAS
    5. Golosov, M. & Tsyvinski, A. & Werquin, N., 2016. "Recursive Contracts and Endogenously Incomplete Markets," Handbook of Macroeconomics, Elsevier.
    6. Cordoba, Juan Carlos & Liu, Xiying, 2014. "Altruism, Fertility and Risk," Staff General Research Papers Archive 37481, Iowa State University, Department of Economics.
    7. Liu, Xiying, 2015. "Optimal population and policy implications," ISU General Staff Papers 201501010800005546, Iowa State University, Department of Economics.

    More about this item

    Keywords

    Private information; Risk sharing; Long run inequality; Endogenous fertility; Altruism;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth

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